भारतीय राजदूतावास

काठमांडू, नेपाल

Embassy of India

Kathmandu, Nepal

COMMERCE WING UNCLASSIFIED BRIEF

As on 2 July, 2021

About Commerce Wing

1.         Commerce Wing looks after India-Nepal exchanges in trade, transit and investments. It also looks after bilateral cooperation in water resources sector and power sector. In addition, it oversees cooperation in civil aviation and tourism sectors. Commerce Wing also monitors the implementation of infrastructure projects financed by Government of India’s Lines of credit (through EXIM Bank of India) and a select list of projects under grants-in-aid.

Commercial and Economic Relations:

2.         India is Nepal's largest trade partner and the largest source of foreign investments, besides providing transit for almost entire third country trade of Nepal. India accounts for over two-third of Nepal’s merchandise trade, about one-third of trade in services, one-third of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners, professionals and workers working in India.

Bilateral Framework for Trade and Transit

3.         The bilateral framework for trade is anchored on the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorised Trade - 2009. The revised Trade Treaty, valid for seven years, was signed on October 27, 2009. Both Treaties were automatically renewed for a further period of 7 years in October 2016. The Trade Treaty allows Nepal unilateral duty-free access to the Indian market. It has been decided by the two Governments to carry out comprehensive review of the Treaties of Trade and Transit between the two countries. Review process has commenced since August 2018.

4.         India and Nepal also have a Treaty of Transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. Its revised version was signed on 6 January 1999 and has since been auto-renewed every seven years, the last being in 2020. The Treaty and the LoEs associated with it allow Nepal’s merchandise to move seamlessly through India’s road, railway and ports network.

5.         The Trade Treaty revised in 1996 can be considered as a turning point in the trade relations between the two countries. Since 1996, Nepal’s exports to India have grown more than eleven times and bilateral trade more than seven times. It is notable that India is Nepal’s largest export destination, receiving an overwhelming 74% of its total exports. By comparison, the 2nd largest export destination is the United States with 10% share, followed by Germany (3%), the UK (2%), Turkey (1.5%), France (1%) and Japan (1%).

6.         An Inter-Governmental Committee (IGC) meeting on trade, transit and cooperation to control unauthorized trade between India and Nepal at Secretary-level is held on regular intervals. It is a platform to discuss and resolve issues relating to bilateral trade between India and Nepal, transit facilities provided by India to Nepal to facilitate trade with third countries, investment promotion, improvement of infrastructure at land customs stations, day-to-day problems in regulation of Nepalese traffic-in-transit, issues related to Indian investment in Nepal, etc. Another mechanism, the Inter-Governmental Sub-Committee (IGSC, Joint Secretary-level) is also held regularly and usually precedes the IGSC. The last meetings of the IGC and IGSC were held via videoconference on 7 Dec 2020 and 3-4 Dec 2020, respectively.

India Nepal Trade

7.         India-Nepal merchandise trade statistics over the past few years are given below.

In US$ million

Indian Financial Year (April to March)

Source: DGFT, Govt. of India

Transit of Nepal’s 3^rd Country Trade

8.         Nepal’s transit trade is routed through twenty two designated routes between India-Nepal border and the ports of Kolkata/Haldia and Vishakapatnam. In addition, Nepal’s trade with and through Bangladesh also transits through India. Government of India is providing assistance for development of cross-border trade related infrastructure. It includes upgradation of four major Integrated Check Posts at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal. Integrated Check Posts at Birgunj and Biratnagar are fully functional and works on ICP Nepalgunj have commenced. 

9.         LoE on Operationalisation of Vishakhapatnam Port (Amendment in the Treaty of Transit) for traffic-in-transit between Vishakhapatnam Port and Nepal was signed in February 2016 during the visit of Prime Minister of Nepal to India. Commensurate amendments in the Railway Services Agreement were also made. Since then it has facilitating movement of transit traffic between Vishakapatnam Port to Nepal (ICD Birgunj) and providing additional transit facilities. Both the Governments have now operated ECTS mechanism for transit cargo on a pilot basis and discussions are going on to make it permanent.

Trade and Transit during the Pandemic

10.       When most borders around the world remained closed, the India-Nepal trade routes continued to be open and robust. In fact, after an initial slowdown in April 2020, the trade flows between India and Nepal quickly picked up, and steadily began to exceed even long term averages.

11.       Statistics published by Nepal Customs indicate that during first nine months of Nepali Fiscal year 2077-78 (mid-July 2020 to mid-April 2021, coinciding with the pandemic), Nepal’s exports to India saw a 23.5% increase over the same period last year. This is Noteworthy considering that the trade flows in rest of the world actually dipped in this period, by almost  5%. Much of the rise in Nepal’s exports to India was contributed by agricultural and food products, thus making Nepal’s farmers a direct beneficiary.

12.       During the same nine-month period, 99% of Nepal’s overland trade – with India and rest of the world – took place through customs stations on the Indian border, which remained open throughout and in both directions. Even during the pandemic’s 2nd wave, we were able to keep the flows open, which included large quantities of Covid-19 related medicines and equipment.

Indian Investments in Nepal

13.       Indian Investment in Nepal: Indian firms are among the largest investors in Nepal, accounting for more than 30% of the total FDI stock in Nepal, worth nearly USD 500 million as per NRB data in 2019). There are about 150 Indian ventures operating in Nepal engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries.

14.       A Bilateral Investment Protection and Promotion Agreement (BIPPA) was signed on 21st October 2011. A model Bilateral Investment Treaty (BIT) is being discussed between the two countries. India and Nepal also signed a Double Taxation Avoidance Agreement (DTAA) on 27th November 2011.  With the signing of this agreement, bilateral trade and investment from India has got further boost.

Customs Cooperation

15.       A mechanism of Director General Level Talks on Customs Cooperation and exchange of information between the Customs Administrations of two countries in place since 1994. This mechanism provides an institutionalized arrangement to discuss issues relating to enforcement, trade, transit and cooperation between the two Customs Administrations. The talks in the past have led to improved cooperation in the field of enforcement and facilitation of trade. 20 rounds of talks have been held so far, the last of which was held virtually on 19-20 April 2021.

Water Resources Sector

16.       Cooperation in water resources primarily concerning the common rivers is one of the most important areas of bilateral relations. A large number of small and large rivers flow from Nepal to India and constitute an important part of the Ganges basin. These rivers have the potential to become major sources of irrigation and power for Nepal and India. A three-tier bilateral mechanism established in 2008, to discuss cooperation in water resources, flood management, inundation-control and hydropower development between the two countries, has been working well.

17.       The Koshi Agreement (signed in 1954 and revised in 1966) and Gandak Agreement (signed in 1959 and revised in 1964) represent the first major agreements on India-Nepal cooperation in water resources sector. These were aimed at flood-control, irrigation and power generation for the benefit of both India and Nepal. Another landmark agreement, The Mahakali Treaty signed in 1996 between India and Nepal provides for equitable use of the waters of the Mahakali river for both countries, including through implementation of Pancheshwar Multi-purpose Project which will provide irrigation, flood-control and power to both India and Nepal.

18.       As part of bilateral cooperation on flood-management, river training works on Kamala, Bagmati and Lalbakeya rivers were completed under Indian grant-assistance amounting to NRs 4.85 billion (more than INR 300 crores). These works benefit several millions of people inhabiting in the watersheds of these rivers in India and Nepal. Mutually-agreed emergency works have also been funded by Govt. of India on other rivers to minimize the danger of inundation. Government of India has also been proactive in providing relief material to flood-affected areas in Nepal, constituting yet another area of India-Nepal cooperation in this sector.

19.       In the recent meeting of Joint Standing Technical Committee on Water Resources held in January 2019, Government of India has agreed to support the river training works in three more rivers i.e. Khando, West Rapti and Banganga, under the Joint Committee on Inundation and Flood Management (JCIFM) framework.

Power Sector Cooperation

20.       Power sector cooperation between the two countries is driven under the Power Trade Agreement that was signed in 2014. Under this agreement, a Joint Steering Committee (JSC) and a Joint Working Group (JWG) have been established at Secretary/Joint Secretary levels, respectively. The 8th meeting of these mechanisms took place on 23-24 November 2020 over VC and covered issues related to power trade, building of cross-border transmission lines, upcoming power projects and also prospects for cooperation in renewable energy.

21.       Power Trade: India exported about 1500 MUs of electricity to Nepal in 2020, down from almost 2700 MUs in 2018. This decrease is because of increased domestic power production capacity of Nepal. There are around 20 radial lines between the two countries but the bulk of this export happens through Muzaffarpur-Dhalkebar 400KV line. Nepal also receives 70 MUs of free electricity annually under the Mahakali Treaty, and additional free electricity under the Koshi and Gandak Agreements.

22.       In February 2021, India issued the Procedure for Approval and Facilitating Import/Export Cross Border of Electricity by the Designated Authority, thereby streamlining the regulatory regime and procedure for electricity trade with and through India. In May 2021, Nepal became the first country to benefit from this Procedure when Nepal Electricity Authority entered into an arrangement with NTPC Vidyut Vyapar Nigam Ltd. to buy power in real time from Indian Energy Exchange. As on date, Nepal is able to buy electricity from India through dynamic pricing which has resulted in significant savings for Nepal Electricity Authority.

23.       Power Transmission Lines: An India-Nepal Joint Technical Team (JTT) was constituted in 2014 for preparation of a long-term integrated power transmission plan covering projects up to 2035. The 9^th JTT meeting took place on 15 January 2021.

24.       Muzaffarpur-Dhalkebar 400KV line: This line was launched by Prime Ministers of India and Nepal during the latter’s state visit to India in February 2016. The Nepal portion of the 140 km long line was built under an Indian LoC (line of credit) of USD 13.5 million. On 11 November 2020, the line was successfully charged to its full capacity. However, due to low distribution capacity of Dhalkebar substation and limited integration with rest of the grid, the actual power transmitted was less (up to 350 MW). With the operationalizing of Dhalkebar substation on 1 Feb 2021, the line can now operate at its full capacity of 1000 MW. Dhalkebar has thus acquired the potential to become the major gateway for cross-border electricity trade in South Asia.

25.       Two additional 132 kV cross-border transmission lines between Kataiya (India) - Kusaha (Nepal) and Raxaul (India) - Parwanipur (Nepal), built with GoI grant assistance, were completed in 2017. Both sides have decided to increase the capacity of these two lines through stringing of additional circuits. Several new cross-border lines are also under various stages of planning, such as the Gorakhpur-New Butwal line, the New Nautanwa-Mainhiya line the Nanpara-Kohalpur line, etc.

26.       India has also supported the construction of power transmission lines within Nepal through Lines of Credit funding via the EXIM Bank. These lines include the Koshi corridor line, the Solu corridor line and the Modi-Lekhnath line which are nearing completion.

27.       Arun III Project (900 MW) is a flagship project of between India and Nepal in the power sector. It is a peaking run-of-river project located on the Arun River in Sankhuwasabha district of Province 1 in eastern Nepal. It is an export-oriented project and was awarded to India’s SJVN Limited on build-own-operate-transfer basis for a period of 30 years including construction period. The foundation stone of the Project was laid by the two Prime Ministers in May 2018.  Since then, the construction of the Project has progressed in full swing, with nearly 42% physical progress as of mid-2021, and is likely to be completed ahead of schedule. Once complete, it will be Nepal’s largest power project.

28.       In July 2021, SJVN Ltd. signed a MoU with Investment Board of Nepal for the development of Lower Arun HEP (679 MW) proposed to be located downstream of Arun III and expected to be built as a cascade project.

29.       The 900 MW Upper Karnali HEP was awarded to India’s GMR. The project is currently in pre-construction phase and the developer is undertaking activities related to land acquisition, compensation, financing and power purchase discussions, in close supervision of the Investment Board of Nepal.

Petroleum

30.       The Raxaul-Amlekhgunj across border petroleum pipeline project is a 41 kilometer pipeline to transport petroleum products from India to Nepal.  The project aims to connect Indian Oil Corporation’s regional depot at the bordering Indian city of Raxaul with Nepal’s biggest fuel storage based in Amlekhgunj. An inter-governmental MOU was signed on 24 August 2015. Indian Oil Corporation and Nepal Oil Corporation also signed an MOU on 25 August 2015. It is South Asia’s first cross-border petroleum products pipeline.

31.       Constructed and funded by Indian Oil Corporation Ltd., the pipeline was remotely inaugurated by the two Prime Ministers on 10 September 2019. Within a short span of being made operational, the pipeline is able to save Nepal Oil Corporation nearly NRs. 15 crores a month. The pipeline created a record by supplying 100 million liters of diesel to Nepal in a single month in December 2020.

Civil Aviation

32.       The bilateral cooperation in this sector is governed by the India-Nepal Air Services Agreement which was signed on 16th February 2010 to facilitate air traffic between the two countries. 30000 seats per week have been allocated to each side in each direction. The last structured bilateral discussions on Civil Aviation cooperation were held on 21 December 2016 in New Delhi at the Joint Secretary-level. A bilateral Air Bubble arrangement was agreed by the two sides in December 2020 to ensure aerial connectivity during the pandemic period.

Tourism

33.       India is the largest source country for tourism into Nepal. Indians visit Nepal for its lofty mountains, hospitality and cultural diversity. A large numbers of Indians are also attracted to Nepal for religious tourism. The same is true for the Nepalese who visit tourist places, shrines and temples located in the farthest corners of India.

34.       A Memorandum of Understanding (MoU) on Cooperation in the field of Tourism was signed between the two Governments on 25 November, 2014 in Kathmandu. The MoU aimed to deepen and broaden cooperation in the field of tourism and also promote cooperation and direct communication between the stake holders of tourism and hospitality industry for enhancing tourism cooperation and strengthening economic development and employment generation.

35.       The 2^nd meeting of the joint Working Group (JWG, Joint Secretary-level) on Tourism was held on July 6, 2018 in Kathmandu. The JWG discussed a series of initiatives to boost tourism in both countries, including the Ramayana Circuit, the Buddhist Circuit and several others.

Lines of Credit

36.       Government of India supported Lines of Credit extended by the Export Import Bank of India to Government of Nepal. GOI has agreed to provide four lines of credit to the Government of Nepal for US$ 100 million, US$ 250 mn, US$ 550 mn and US$ 750 mn. These lines of credit were signed in June 2006, September 2007 and September 2016, for execution of infrastructure development projects and post-earthquake re-construction projects as prioritized by Government of Nepal.

37.       India’s Lines of Credits have financed 45 road projects, another 9 projects in hydropower, transmission lines and irrigation, and several others in housing and reconstruction. A large number of these projects are either completed or are nearing completion, including some iconic and major projects.

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